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Asian Consumer Demand Growth and Prospects Index

The following is an experimental index of predicted consumer demand growth in 14 Asian countries currently being developed by Asia Market Research editors, staff and partners. When approved for official publication it will be published quarterly. At present it will change more frequently.

The index is designed to provide a relative index of consumer sentiment and demand in the next 12 months, based on the rough premise that advertising and marketing campaigns for most consumer products take around that time from conceptualization to launch to revenue generation. At present, several algorithms are being experimented with and include unemployment figures, salary growth, job vacancies, consumer confidence, sales growth in key consumer industries, country risk, GDP, and a lagged indicator of stock market performance, as well as subjective perceptions from (at present)17 industry, market research and management professionals in Asia.

Most importantly, it bears reinforcement that this is an index of predicted consumer demand growth over the next 12 months. The baseline is set as equal for all countries for each period. Ratings are not anchored, so are only useful for relative comparisons over time periods. The higher the rating, the higher the predicted consumer growth relative to the previous 12 months for that country. This means that "bars" for smaller economies are sometimes higher than those for mature and developed economies, despite much lower levels of affordability and spending. This reflects that growth is faster, not that consumer demand or spending is higher.

It goes without saying that the data is for interest and discussion only, and we are not responsible for the success or failure of decisions taken as a result of this index. The index is of course very general. Major differences would occur according to consumer sector, demographics, and product or service class. Even in it's final form, this index is intended as a guide only.

AMR Consumer Growth & Prospects Index

August 2003: August's update to the AMR Asian Consumer Growth Prospects Index is marked by the first tentative upturn for the long suffering Japanese consumer market, more confidence in the Chinese consumer market with the containment of SARS, and a quite substantive uptick for India (and to a lesser extent Pakistan), where decreased tensions with each other has reduced country risk significantly. Our panel was still unconvinced of any substantial growth for Singapore, South Korea, Taiwan and Malaysia to bring them substantially off their lows in the next 12 months, despite an increasingly healthy US economy with side benefits for the manufacturing sector in Asia. Most panel members noted competition from China and India as being the reason for this, dampening most of the positive effect for higher cost manufacturing bases.

Thailand continued to attract positive comments from panel members, reflected in the good showing for Thailand this month. Some however doubted that this may be sustainable in the medium term to long term (over 12 months), and there is some risk with long term investments in Thailand, especially if predicated on the fast growth rates seen over the past 18 months.

April 2003: While the consequences of the war in Iraq dominated Asian consumer sentiment in March, this month's survey reinforced that SARS has emerged as an even greater threat to consumer spending in Asia for the next 12 months. For the first time since the commencement of the index, China has suffered two significant 'downgrades' in a row.

The panel noted in particular very pessimistic economic outlooks in Singapore and Hong Kong as a result of SARS, as well as projected decreased domestic spending as workers accept down-sizing and lower salaries and the usual decline in consumer spending in times of uncertainty. China's downgrade was also due to the panel's projection that investor's confidence in the country may be reduced by the explicit demonstration of the downside of a less-than-open society, given FDI's direct relationship to the dramatic increase in affordability of Chinese mainland consumer sectors in the last few years.

In the cases of countries with a high dependence on tourism such as Thailand, Singapore, Malaysia, and Hong Kong itself the effect of SARS is seen as of major significance regardless of the incidence of SARS in the country itself. By almost all accounts the downturn in regional travel, which previously saved the industry post 9/11, is now causing major problems for airlines, hotels, tourist operators resulting in staff redundancies and a massive fall in the part time casual employment characteristic of the industry.

March 2003: The dominant factors influencing the index this month are the increasing likelihood of military conflict in Iraq, and secondarily tensions emanating from North Korea. This has had an overall effect in damping prospects for consumer growth in almost all countries, but particularly to those closer to the anticipated arenas of conflict or those with larger proportions of Muslim citizens. A secondary factor is the continuing bad economic news from Europe and the US, affecting countries with a level of dependence on exports to the West.

Most affected is consumer demand sentiment in South Korea, which previously had very strong prospects for the next 12 months. It is important that this is not overstated, and most commentators referred to increasing insecurity and an escalated level of the same risks that South Koreans have lived under for the past decades. It should be noted that Seoul is located very close to the demilitarized zone border of North and South Korea.

December 2002: Continued confidence in China and significant jumps for India and South Korea as we move into the new year suggest that 2003 may be a year of good consumer growth for East Asia, excluding a still moribund Japan. Other changes for specific countries are fairly small. A significant factor is the likelihood of a US domestic recovery in 2003, which gives those economies with a strong export basis (such as South Korea) a boost. In South East Asia, Thailand seems to be generating the most excitement at present - it's performance in 2002 exceeded many predictions, though fears of a second "bubble" have arisen. Singapore is still struggling to create unique value-added opportunities in a high business and living cost environment spurred by many years of record growth. Biotech is a target, but it is a competitive field. Malaysia has better prospects (as always from a much lower base), but the planned slow and fairly secretive transition of the political lanscape withing the ruling coalition after many years of seemingly "one-man rule" is causing investors to delay decisions on Malaysia until there are more "knowns" in the area of political succession and stability. India is the surprise packet. Overshadowed by the mass publicity and spin on the rise of China, the world's second largest country has carved out enough strategic market positioning to boast some high growth indutries, increasing employment levels, middle class salaries and consequent consumer budgets. At present the likelihood of military action in Iraq is not a key factor, though this may change in the next month. Conflict in Iraq may affect consumer growth in Islamic majority countries like Malaysia and Indonesia, and countries with ongoing unresolved issues like the Philippines, through anti-global sentiment and oil pricing issues.

November 2002: This month is characterised by a significant rise in the perceptions of consumer growth prospects in China, continuing a general trend established since the commencement of this index. Generally South East Asian markets dropped slightly, but more so in Singapore which is struggling to maintain it's high level of local consumer spending in the face of it's exposure to the global market downturn and accepted long re-structuring road ahead. Japan and Hong Kong also saw downgrades on the index for much the same reasons as Singapore, though there is less confidence that restructuring will be as relatively smooth as in the smaller Singapore market.

September 2002: Very little movement this month, other than a slight decrease overall with the prospect of instability in the Middle East in the face of US threats to Iraq. Such a situation is perceived as making for increased consumer insecurity. Thailand returned the only discernable consistent quarterly increase, and there has been some upward movement in Hong Kong, where the country has been slowly emerging from recession. However this was not enough to boost the index due to continuing long term concerns on how Hong Kong's service-based economy will be affected as China attracts more direct investment, trade, and business. Singapore is still taking a while for real consumer growth to emerge, and Japan's rise in July has not been reinforced in September.

July 2002: Some good news on Japan has seen prospects rise, and a resurgent Thailand continuing their positive showing in recent months. Singapore is still stuttering - officially the recession is over, but uncertain overseas markets, declining employment, and the hard facts that real take home income must reduce for Singapore to retain competitive, mitigate against any fast return to high local demand for consumer items. A reduction in political risk in Pakistan and India saw their ratings rise this month after sharp falls in previous months.

June 2002: This month saw Australia and New Zealand rise significantly as the economy expanded. In Australia, the first interest rate increases for several years were imposed. Thailand is in the middle of what the Bangkok Post calls a spending spree, but there are some structural problems in the Thai economy remaining, as well as some foreign relations problems with neighbouring Burma. However, Thailand still remains a star of the South East Asian recovery. Korea and Taiwan reinforce their first mover recovery among the group and the first good news for Japan in a while suggests that a Japan recovery is not far off, though it will be muted. Japan records the largest increase in the index this month, while both India and Pakistan, with the Kashmiri conflict on everyone's radar, took a dive.


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